Borrowers frustrated by unfulfilled promises of mortgage aid program

Terry and Marilyn Wallace of Antioch pinned their hopes to save their home on the federal government’s Making Home Affordable Program. Now, they wish they hadn’t.

“It’s a farce,” said Terry Wallace, who spent more than a year faxing documents to his bank, hoping to get approval for a loan modification. The couple said the bank finally told them in April they didn’t qualify because they hadn’t submitted all their documents.

“The whole thing was nothing but a farce,” Wallace said.

Numbers revealed by the U.S. Treasury Department for July show that more than a year after the federal government announced its Making Home Affordable Program to get banks to modify 3 million to 4 million mortgages for distressed borrowers, only 434,716 — or as little as 11 percent of the goal — have been permanently modified. Of those, 4,529 loans were in Tennessee.

Many more homeowners have been put in trial modifications only to find out months later the bank canceled them. Close to half of all the homeowners who have gotten trial modifications have had them canceled.

What started as an ambitious attempt to stem the foreclosure crisis with the government’s help has proved more difficult and frustrating than many homeowners and foreclosure counselors imagined.

Marilyn Wallace moved with husband Terry to Nashville from the Chicago area in 2004, hoping to get away from the crowds and the high cost of living there.

They bought a brand-new brick home for $249,900 in 2005 in the Oak Highlands subdivision in the Cane Ridge area.

It was the peak of the housing boom in Middle Tennessee, and Terry had a high-paying job as the head of a maintenance department for a senior living center. But Terry was laid off two years later and spent 14 months trying to find a job, finally taking one as a maintenance man netting much less income. He brings home just $2,800 a month, not enough for the $2,000 mortgage and other expenses.

Marilyn lost her job as well and is looking for full-time work.

Despite such hardships, like many other homeowners struggling with mortgage payments, the Wallaces aren’t free of blame when it comes to their finances.

For instance, they didn’t put any money down on their mortgage, which would have lowered their monthly payments. Terry Wallace said that at the time, he was still being conservative because his lender told him he could qualify for as much as a $500,000 loan.

But after both lost their jobs in the subsequent years — and had to make do with less income — the $2,000-per-month payments became unaffordable. Plus, Terry Wallace worries the couple won’t be able to sell their home for what they owe, because home values have fallen.

A spokeswoman for JPMorgan Chase — the lender — said she couldn’t talk about individual customers to protect their privacy, but the most common reason people don’t get loan modifications is because they fail to submit the proper paperwork. The Wallaces counter that they submitted documents repeatedly, which were subsequently lost by JPMorgan.

Now, the Wallaces fear foreclosure by the bank or a short sale for less than their property could be worth after spending all of their retirement savings trying to keep their loan up to date.

Lenders foreclosed on 1,703 properties in the second quarter in the Nashville area, about a 7 percent decline from the recession’s first-quarter peak, according to foreclosure listing service RealtyTrac.

Like a lot of homeowners who assumed the federal government would help them reduce mortgage payments as they lost jobs or income, the Wallaces found that Making Home Affordable has done anything but.

“I was naive and thought it was going to work,” Marilyn Wallace said. “I thought the government was actually going to help Main Street.”

JPMorgan Chase says it has completed 214,000 loan modifications since the start of 2009, 72 percent of them outside the Making Home Affordable program. Nancy Norris, the spokeswoman for JPMorgan, said the bank tries to get everyone qualified for that federal program first, but if the borrowers don’t qualify, the bank looks for alternatives.

However, the government’s program tends to be more generous than those offered by private lenders, according to data tracked in the Mortgage Metrics Report of the U.S. Treasury and the Office of the Comptroller of the Currency.

As of the first quarter, close to 80 percent of Making Home Affordable modifications lowered mortgage payments by one-fifth or more while only 56 percent of overall modifications lowered payments by that much. Some modifications even raised payments, the report says.

The Treasury said the median payment reduction in the government’s program has been 36 percent, or more than $500 a month in savings.

Treasury officials have emphasized that they are improving the program’s results and that 1.3 million Americans have gotten trial modifications that at least lowered their payments temporarily.

The Treasury pays lenders and mortgage servicers for each loan they permanently modify. But so few loans have actually been permanently modified, only $631 million out of the original $30 billion marked for the program has been spent.

The Treasury has subsequently rolled out additional programs, including one that will help homeowners do a short sale of their homes — without having the bank come after them later for the difference.

Bank Incentive Is Low

Some consumer advocates say the government’s approach has been flawed from the start.

Although many lenders were required to participate, the incentives offered to the lenders to finish a modification were low — only about $1,000 to $1,500 per mortgage holder, said Daryl Hill, program director for GAP Community Development Resources, a nonprofit in Franklin that offers foreclosure counseling. “(That) $1,500 may sound like a lot to you or me, but for a bank it’s not,” he said.

Rod Williams, director of housing services for the nonprofit Woodbine Community Organization in Nashville, said his clients are getting “jerked around” by some lenders that take so long to make a decision on a loan, that the loan documents are out of date and need to be resubmitted. “It’s a mess,” he said.

Diane Thompson, an attorney with the National Consumer Law Center, with headquarters in Boston, said lenders weren’t fined for poor performance.

“(Loan) servicers have not been held accountable for the failure to make the program work,” she said. “(It) has not been successful in stopping foreclosures and preserving home ownership.”

The lenders themselves, however, have countered that many homeowners weren’t eligible or wouldn’t fill out the proper paperwork.

“You can’t modify a loan where there is no income,” said Faith Schwartz, a senior adviser to Hope Now, the group of private lenders that operates the Hope Hotline for homeowners having trouble making their mortgage payments.

The U.S. Treasury Department refers homeowners regularly to the Hope Hotline for help.

Schwartz acknowledged there have been problems.

“It’s been messy and processes have been improved,” she said. “I’ve worked with these servicers for years, and it’s hugely important for them to fix.”

Some people, like James Scott, a 54-year-old who has lived in the same house in Hermitage for 27 years, haven’t noticed any improvement.

Scott applied nine months ago for a loan modification and received a temporary modification that lowered his monthly payments by about $80, to $678 a month, plus he owes an additional $4,000 in late fees. He has been laid off multiple times as an offset press operator during the past few years and is taking whatever jobs he can find.

His sister, Joyce Sharpe, has been trying to help him talk with the bank. Sharpe said she can never get the same person to answer the phone twice, and she has been told that documents they’ve submitted multiple times have been lost.

“I can’t believe it’s taking as much as a year to complete this process,” she said. “(Scott) gets so upset that he can’t think or talk straight.”

Finally, this month, Scott was told he didn’t have enough income to qualify for the loan modification. The bank sent him a foreclosure notice. “To me, it’s weird the government can help Fannie Mae and the car industry, but a regular, blue-collar worker like me, he gets the shaft,” Scott said.